If you tried to break your fixed rate mortgage or refinance in the last 16 months, then you probably found out the hard way the Big Six Banks and many other mortgage lenders (bu not all) calculate the penalty in one of two ways….
3 months interest penalty or Interest Rate Differential (IRD). Most mortgages fell into the IRD category… how does this work? Each Bank seems to have their own formula and I could find only one that posts the formula online….. TD Canada Trust’s formula is similar to most Banks… I’ll give TD Canada Trust credit for posting this calculator online….at least borrowers can go here and figure out the cost of early prepayment… take a few moments and calculate how much your penalty would be…
Here’s an example: $250,000 with 3 years remaining at 5.50% and where the branch gave you a 1.25% discount at the time the mortgage was first arranged…equals a penalty of $14,250. That’s equal to 12 months interest.…. Try the calculator yourself to see what your penalty would be….
The good news is that as interest rates climb it now becomes worth looking at getting out of the higher fixed rate mortgage products…..(probably a great time to be looking at variable rate mortgage with rates as low as 1.70%)
New listings in Canada reached 97,663 in March 2010… the highest number ever according to a report on CBC.ca. Inventory sits at 4.4 months….or in other words, it will take you an average of 4.4 months to sell your home….
That might be correct for some parts of Canada but it’s certainly not the case in major centres as multiple offers and above asking sale prices are still common place in Toronto… The last 5 months has seen a very healthy real estate market… The new Mortgage Rules will take some homebuyers out of the market.
We couldn’t keep going at this pace.. No one wants to see a runaway market… that’s always a recipe for a hard landing… To me, this report is good news….a healthy real estate market means the government’s stimulus package and incentives had the desired effect… Good news is good news….
Royal Bank increased their fixed mortgage rates again by 0.25%….that’s an 0.85% increase in 2 weeks… Scotiabank increased their rates shortly afterwards. We can expect the other Major Banks to follow this latest increase.
What’s interesting about this move is that the bond market has not increased by the same amount…. On February 15th 2010, the 5 year Bond yield was 2.53%…today, it’s 3.08%….Mortgage Lenders and Banks want to earn a 1.20% to 1.30% spread in the wholesale mortgage market… Today’s best 5 year fixed rate mortgage is 4.39% but will increase to around 4.64%…. That puts the spread all the way up to a whopping 1.56%.
By the way, not all Lenders have increased their rates… there are still Lenders with rates in the 4.39% range but we should expect them to follow suit…
On April 19th, you might be forced to take a 5 year fixed rate mortgage….
There has been a lot of media talk about the new Mortgage Rules…. On April 19th, the rules for Borrower’s with less than 20% down payment will come into effect…. But let’s clarify…
There was an article in the Vancouver Sun last week that talked about an internal document that was distributed by CMHC to Mortgage Brokers… Here is a quote from that internal document:
“Clarification on Qualifying Interest Rate
Effective April 19, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with a loan to value ratio (LTV) greater than 80% as follows:
Fixed Rate Mortgages and Variable Rate Mortgages: For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate1, and the contract interest rate. For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.
Mortgages with Multiple Interest Rates (e.g. Multi-Component Mortgages): Each component must be qualified using the applicable criteria defined above.
1CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01 AM (Eastern Time) each Monday, and which can be found at: http://www.bankofcanada.ca/en/rates/interest-look.html“
Did anyone pick up on that….? Today’s best 5 year fixed rate is around 4.29%… If you take a 5 year fixed rate, then your mortgage is qualified using that rate… no problem… BUT, if you take a shorter term or a variable rate product, then you must qualify using the BANK POSTED rate which is 5.85% today.
Put another way, a $300,000 mortgage with a 25 year amortization requires an annual income of $74,000 if you selected a 5 year fixed rate or longer term….BUT what if you wanted shorter term or the popular Variable Rate product which is currently 1.75%? …then you would need to qualify with the BANK POSTED rate of 5.85% and that would require a household income of $84,000…..
I don’t know about you, but Variable Rate mortgages are still very attractive…it’s too bad many of us won’t be able to make that choice when we buy our next home…
Genworth Financial is kicking off the traditional Spring housing market with a week of Online seminars… Each day has a different theme….The goal is to educate prospective homebuyers and borrowers so they can make informed decisions….
The website is Homeownershiphelp.ca and here’s the schedule of events…
|WEDNESDAY APRIL 14
||Test Your Knowledge
||Tips on Purchasing and Owning a Home
|Learn the importance of good credit and how your credit history is established
||Find out how to reconcile what you want with what you can afford
||Understand the steps of home purchasing in Canada
||Take the Homebuyer 101 course
||Find out the fast facts that will help make your dream home a reality